Still no Crash Pre-Cursors

Amazingly, there have not been, and  there are  no Crash Pre-Cursors.  I thought we would  have possibly seen them over the past few months.  They did not develop.  

  

Marching Forward towards a pre-cursor

It was great news to hear Sunday abut the 100 Billion Euro Loan to Spain for its banks.

From today's action, combined with other movements the past week, sadly, it would appear to be too little too late.

Sally, Bar The Door.

Alarm set for 1am the coming morning. Spanish Bond Sale. 08 Congress Deja Vu

I am headed off to try and sleep early tonight, so I can get up 1am my time for the Spanish Bond Sale.

Why?  This time period despite my repeated protestation of:  "its like 98, not 08", enters an event similar to 08 in my mind.

Secretary Paulson  had called heads of Congress together to tell them that MASSIVE stimulus was needed that weekend, or come monday the banking system would not work.  (little did anyone know, that Paulson was ALREADY talking to then Candidate Obama!)

A key difference to note here as I ramble, is that in my work you would see that the first crash pre-cursor had already shown up the FIRST HALF OF 07.  The second showed in the second half (also in the blog), so the large complex dynamic self organizing system was already critical and susceptible to a six sigma event.  We all watched in horror that week, as congress initially failed to act quickly, and thus with self inflicted wounds initiated a massive massive crash.

So here we are today, on the precipice of a crash pre-cursor, and we have a critical EU financial health event tommorow in the a.m. I am not an insider, so I do not know what has transpired in the urgent desperate inter-continental governmental talks.  Are they standing bye with financial "helicopters, bazookas, howitzers, tomahawks" at the ready???  Or will they repeat the mistake (at a different point in the phase shift, albeit) of our congress, and thus guarantee a crash precuror setting us ALL up for another sickening fall.

Respectfully yours,
bob

Short term pop in S&P 500 perhaps, but we will probably get a pre-cursor shortly

A short term  pop (technicals and G7 phone conference call  tonight) in the S&P 500 to be expected, but it seems the die has been cast, and we will probably get a crash precursor soon.

As impossible as it may seem, within the elevated volatility of the time period containing a pre-cursor, a crash timeline might be extrapolated.  Of course, as it develops I will let you know. 

Good luck!

Getting nervous and a little clarification

Last post mentioned an inflection point at 6/1/12.  That is from a time unit of measure of daily.

Utilizing a four hour unit of measure, an inflection point arrives 5/24/12. 

I am intra-day trading volatility, but have also gone long volatility awaiting a probable return to an increasing volatility trend, and downward equity market.  Pending verification in the first hour of trading tomorrow 5/23/12, most probably I will be adding substantially to the long vol positions.

As I have been saying for quite a while, this is similar to 98, not 08. 

Good Luck

NOPE. Not Yet.

Seem to be pausing here with /ES bouncing and volatility imploding.  Pointing towards 6/1/12 as next inflection point in this short term wave.

Seems to be self-organizing towards a pre-cursor confirmation.

Chances are increasing greater and greater every day that we have a pre-cursor confirmation.

And I repeat....

And I repeat from Fridays 4/6/12 post:  "A relative spike(from lows) in volatility yes;  pending crash, no. Not yet."

By the end of tomorrow I expect S&P futures  could touch 1338.5, and the VIX to be approaching 24. 

That would be healthy.  We've had an incredible run.

The danger would be if we go through 1338.5, and the VIX continues above 24.  The problem with volatility is that it is normally auto-regressive, until it isn't, and when it isn't, it is persistent.  This is essentially the problem with modern generally accepted economic analysis.  Large spikes are explained away with contingency, and the data thrown out as an anomaly.  A scientist calls that "not full process".

I had kept this blog invisible for years, and only shared with my children and closest friends.  A lot of people viewed it from a link, on a comment I made on the great blog TBP by Mr. Barry  Ritholtz.  I feel obligated to post in a timely manner as this volatility spike runs its course, so as to not leave anybody hanging since you had the courtesy to read my thoughts and return.

Lastly, this spike should give me data that will point to the  time frame of the next spike. I am more concerned with the next spike. 

Respectfully,
bob

Regarding last post of 3/16/2011, todays 4/6/2012 employment numbers. Crash Pre-cursors?

To put it all into context.  After my last post 3/16/2011 the S&P 500 went from a high of 1373 down to 1067 before the end of the year.  The Vix peaked at 48 during this time.

Today, Employment numbers were far less than expected by most, and this morning  the futures dumped.  Still no pre-cursor at the moment.  A relative spike(from lows) in volatility yes;  pending crash, no. Not yet.

Precursor today 3/16/2011

Interesting.   The market is self organizing towards another crash as indicated by our  non-equilibrium, full process, proprietary model based on Self Organizing Criticality.

Please review DEC 11 2008 entry. Aftershock, not a precursor.

"Regarding the time period before stabilization. Could be several months. As I said previously, a probable relief ralley short term, to be followed by a viscious left hook from left field and a major retracement of recent lows. We are not out of the woods yet folks, and it could be a bit longer than we have experienced in our generation."  Entry 12/2008 Alphaadder

This is why on "EMH IS A FANTASY" I said it wasn't a crash precursor.  It is an aftershock.

It is an aftershock, that fits perfectly with my model.  That is why I wrote what I wrote.  Makes sense with the size of the crash.

It really has been an amazing journey.  I am starting a limited partnership at the end of this year.

Thanks for stopping bye. Important entry dates.

Thanks for stopping in. The important entries are:

1) The first on 8/22/05 gives you a (partial) background on the rationale behind the model.

skip to

2) 07/09/07 through 1/7/08 where you can clearly see when I identified "Criticality" based on the models crash pre-cursors. I remind you on 7/6/07 that the Dow was at 13, 611, and the CBOE IMPLIED VOLATILITY INDEX was very low at 14.31. I don't think there was anyone (other than perma-bear doomsayers*) saying we were looking at a six sigma event on the horizon. I nailed it.

The proof is in the pudding. What I did was not an accident. It is based on SOC.

Regarding *(doomsayers) on Wall Street there is a saying; "Even a broken clock is right twice a day."
Bob Klapetzky
bklapetzky(at)yahoo(dot)com

Frustration of the Innovator's Dilemma and Rational Optimizers and time frames.

Regarding previous entries. I don't understand why I'm not being interviewed by the TV news right now! Amazing really. What I did was not luck. It was not an accident. I have a disruptive technology in my possession. Currently studying Clayton M. Christensen's book THE INNOVATORS DILEMMA. Most helpful for both my spirits, and in developing an effective plan for utilization of this valuable asset. Anyway.... moving on!

Rational optimizers are the minority. Once the market has stabilized, they will decide the future leaders. Their decision making framework will be of a traditional deep value bent. Buying a future dollar of earnings/dividend that is tangible and quantifiable. Over time (quite a while) their success will be noted and first mover momentum speculators will start following them, and eventually yet again the herds will be operating in a highly correlated manner and on the greater fool theory.

Regarding the time period before stabilization. Could be several months. As I said previously, a probable relief ralley short term, to be followed by a viscious left hook from left field and a major retracement of recent lows. We are not out of the woods yet folks, and it could be a bit longer than we have experienced in our generation.

I TOLD YOU SO... i told you so. 12/1/08

Volatility incredibly high. It will end in the near future. There will be a relief ralley of sorts, then we will have a sucker punch come out of left field seemingly. That will be the end of the phase transition; and we will have a new market with new leaders, and the rational optimizers will be in charge for a while.

1/7/08 System "Critical" and susceptible to six sigma event.

As I said volatility was expensive and there would be an explosive move. It happened, a head fake ralley and volatility cheapened. Well the New Year arrived, and volatility has once again increased, and the system is critical.

The market is susceptible to a six sigma crash currently, at any time from some unforseen event. The biggest risk is the unforseen risk, as always. Interesting times globally. Cash is king in my book, even if it is a weak dollar.

SECOND PHASE PEAKING. ITS A HEAD FAKE.

SECOND PHASE PEAKING AS I ORIGINALLY DESCRIBED THE CHAIN EVENTS IN PREVIOUS POSTS.

SHORT TERM REVERSAL COMING UP. ITS A HEAD FAKE. THE LEMMINGS WILL BE DRAWN IN AGAIN FOR THE SIX SIGMA EVENT AHEAD.

IT IS THE FINAL REVERSAL BEFORE THE CRASH. TIME NOT DETERMINABLE, BUT IT IS TIME TO SHIFT THE RISK TO OTHERS. VOLATILITY AT THIS POINT IS EXPENSIVE. THAT WILL CHANGE IN A RAPID VIOLENT MANNER.

SECOND PHASE CONFIRMATION

PEOPLE, ARE YOU PAYING ATTENTION TO ME!!? THE LARGE COMPLEX DYNAMIC SYSTEM YOU CALL THE NYSE/S&P500/NASDAQ HAS SELF ORGANIZED TO A STATE OF CRITICALITY, AND IS NOW SUSCEPTIBLE TO A PHASE TRANSITION EVENT CAUSING A SIX-SIGMA CATASTROPHIC CASCADING AVALANCHE OF VOLATILITY. A CRASH.

UNTIL THAT HAPPENS THE RISK REWARD PROFILE IS DEFINITELY UPSIDE DOWN.

IT WOULD ONLY MAKE SENSE TO GET IN DURING, OR SHORTLY AFTER THE "BLOOD BATH".

INTERESTINGLY, IT WILL COME FROM SOME UNFORESEEN EVENT.

SORRY; FOR THE IGNORANT, BUT EXCITED AT VALIDATION. -BOB

First phase done. Don't let your emotions get you.

9/25/07

I'm not backing down, even though YOUR EMOTIONS think that I should.

#1 is done.

#2 is coming. Not necessarily in days. Could be months.

The small wave we just rode up, down, and up is a mirror image of what will happen again in #2, and unfortunately a much smaller version of the six sigma event probably forming beyond the horizon.

Sorry.

CONFIRMATION OF CRITICALITY

07/10/2007 CONFIRMATION OF CRITICALITY.

THE LARGE COMPLEX SYSTEM HAS SELF-ORGANIZED TO CRITICALITY.

THIS WILL BE PROBABLE SEQUENCE OF EVENTS:

1. MINI RALLEY FROM TODAY.
2. ANOTHER STRONG DOWNTURN.
3. ANOTHER MINI RALLEY

AT THAT POINT WE WILL BE SUSCEPTIBLE TO A SIX SIGMA EVENT OF VOLATILITY CAUSED BY SOME UNFORSEEN EVENT AT THIS TIME.

TIME FRAME OF EVENTS NOT DETERMINABLE.

BE CAREFUL OUT THERE. IN THE DIPS YOU CAN BUY IMPLIED VOLATILITY FOR LESS.

DANGER WILL ROBINSON DANGER!

07/09/07

Danger Will Robinson, Danger!

Market is self organizing towards criticality. Phase transition possible containing six sigma event or larger.

Market has reached point of diminishing returns with an upside down risk reward profile. No one will every know exactly when a crash will happen. What is discernible is if the system is susceptible to a phase transition. We are marching in that direction currently.

SWITCHING TO SUBSCRIPTION SOON, NO FOOLING!

4/1/2007

NO THIS IS NOT AN APRIL FOOLS JOKE.

I AM HAPPY WITH MY RESULTS, AND WILL BE SWITCHING TO A SUBSCRIPTION SERVICE IN THE NEAR FUTURE.

ENTRIES ON THE SUBSCRIPTION SERVICE WILL BE POSTED AFTER THE MATERIAL FACT FOR FREE ON THE BLOG FOR REVIEW.

STAY TUNED. I AM EXCITED!

Even a unforeseen surprise , will not surprise.

Volatility to continue, within slightly elevated levels. Not a high degree of correlation with participants. "Rational Optimizers" in charge of this market. The real estate market here in Florida is another issue. LOL! It is funny to watch how people chase returns after the fact, and leverage up with an asset that has already run up. Sound familiar? Reasonably valued Cash generating assets, with good balance sheets are king. Find cash flows that you can quantifiably confirm have the fundamentals beneath them to confidently, and consistently generate expected cash returns.

I am not excited about indices, but even at this point we are not in a "phase" that would be susceptible for a large catastrophic avalanche of volatility. No six sigma or greater events on the horizon within the S&P 500.

Short Term Volatility within expected bounds

Yesterday Dow down 140+. This morning futures down big. To be expected with current news. Market will absorb it and behave within expected volatility parameters; system is not critical and will not "crash" at this point.

I repeat, remember the ABC's that I mentioned earlier. A rigorous application of traditional deep value metrics is, and will be the way to go.

Clarification: Nobody will ever be able to say with certainty that a complex dynamic system will have a six sigma or larger event in a specific time period; the best one can do is understand if the system has reached a point of "self organized criticality" and is then susceptible to a large event. The latter in of itself is of great value as you can hedge, and in parallel the system has reached a point of diminishing returns and decisions regarding asset allocation can be made more effective.

The large complex dynamic system we call the Stock Market is not self-organizing at this point. The system is far from critical. Value has done well as I said it would, and it will continue to do so for as far as I can see. There is no danger of a catastrophic >six sigma failure. A large unforeseen event even equivalent to 9-11 would not have the same effect.

As far as the stock market. Traditional valuation metrics with a priority placed on strong balance sheets and strong cash flows, enabling one to buy a future dollar at a discount today are, and will be the way to go. Stay away from momentum/greater fool concepts.

Taking this into account, passive diversified low expense ETF's come to mind also, if they are exposed to above mentioned parameters. I will be more specific shortly.

11/14/2005 Short term rally peaking.

11/14/2005  Short term rally peaking.

Interesting.  Record number of homes for sale now, and sporadic media reports regarding a real estate contraction. Also interesting to see more frequent buy outs of public firms by private firms.  Probably a good thing as more strategic long term paths can be taken with those assets, instead of worrying about quarterly analysts meetings.

Remember the “ABC”s:  Undervalued ASSETS. Strong BALANCE-Sheet. Strong CASH-Flow.


DATE:  11/14/05

BETA TO BE HIGH OR LOW:  LOW

GROWTH OR VALUE:  VALUE, GARP

MARKET SUSCEPTIBLE TO LARGE EVENT? Pullback yes.  Large event NO, not at this time.  Volatility to be within expected parameters.

DATE 10/06/2005 Ear to the ground.

Short-term pain nearing an end.  GARP:  a growing dividend supported by statistically consistent profits, supported by statistically consistent revenues, backed up with a strong balance sheet exhibiting debt as a percentage of capitalization less than .3, and a PEG ratio less than 1.2 Also proof of consistent good asset allocation decisions as evidenced in ROE being greater than 15. (Preferably growing)

Indexes will move sideways (best scenario) for quite a while, (volatility staying within expected parameters) perhaps even trend down.  If trending down, best pay attention. Therein may lay a large event of volatility exceeding expected parameters.  Could get very ugly, very quickly.

The next bubble is not in the financial markets; it will be in a tangible asset class.  Until that time specific issues with applied due diligence of VALUE, and GARP will chug along.  When the tangible asset bubble pops, or deflates in any manner, returns will be searched for, and eventually we will shift to momentum again.

In the mean time as interest rates continue to rise, the “cheap” money that fueled growth for large caps goes away.  A reliance on internal organic cash flow to fund growth will favor those more able to generate significant free cash flow.  Historically this has been small and mid caps.

The “ABC”s:  Undervalued ASSETS. Strong BALANCE-Sheet. Strong CASH-Flow.


DATE:  10/06/05

BETA TO BE HIGH OR LOW:  LOW

GROWTH OR VALUE:  VALUE, GARP

MARKET SUSCEPTIBLE TO LARGE EVENT? NO, not at this time, but the ear is pinned to the ground.  

10/04/05

A lot of negative things going on. Big players appear to be moving into Foods. A defensive move. Counter intuitive to most, this is not bad, because it is plastered across the media.  There is not a high degree of correlation in activities. So even if there is some large unforeseen event, there will not be a crash, at this point in time.



DATE:  10/04/05

BETA TO BE HIGH OR LOW:  LOW

GROWTH OR VALUE:  VALUE

MARKET SUSCEPTIBLE TO LARGE EVENT? NO. Definitely not.  

09/22/2005 HERE WE GO AGAIN.

Obviously, the rally did not follow through, and deteriorated. Here we are again, looking at a monster hurricane attacking our domestic petroleum refining capabilities. “Rational optimizers” are in charge (see first blog entry) and the best performing philosophy (particularly from a risk adjusted standpoint) will be traditional “value” Interestingly,momentum or other “greater fool” philosophies will under perform, and take on more risk

DATE: 9/22/05

BETA TO BE HIGH OR LOW: LOW

GROWTH OR VALUE: VALUE

MARKET SUSCEPTIBLE TO LARGE EVENT? NO. Definitely not.

09/08/2005

DATE: 9/08/05

BETA TO BE HIGH OR LOW: LOW

GROWTH OR VALUE: VALUE

MARKET SUSCEPTIBLE TO LARGE EVENT? NO. Definitely not. Probable post Katrina relief rally appears to be poised.

09/03/2005

DATE: 9/03/05

BETA TO BE HIGH OR LOW: LOW

GROWTH OR VALUE: VALUE

MARKET SUSCEPTIBLE TO LARGE EVENT? NO, We will continue to be able to absorb bad news and other events.

08/28/2005

DATE: 8/28/05
BETA TO BE HIGH OR LOW: LOW

GROWTH OR VALUE: VALUE

MARKET SUSCEPTIBLE TO LARGE EVENT? NO, at this time. Short term reaction to be expected, as this area is a critical refining area, and the market left friday with just one 'cat one' out there. Possibility exists that other events could start to cause a correlation in activities. Still a way to go though.

08/23/2005

08/23/05

BETA TO BE HIGH OR LOW: LOW

GROWTH OR VALUE: VALUE

MARKET SUSCEPTIBLE TO LARGE EVENT? NO

Stock Market endogenous dynamic.

Empirical observations of the U.S. stock market and of agent based models show catostrophic “avalanches” of volatility that could not be explained by existing financial models.

1963,97- B. Mandelbrot
“The variation of certain speculative prices”
“Fractals and Scaling in Finance”
Stock price changes have fat tails deviating from the Gaussian distribution.

1989- R. Shiller
“Market Volatility
Fat tails correspond to avalanches of volatility that could not be explained by fundamental economics.

1994 - P. Bak and M. Paczuski
“Complexity, contingency, and criticality”:
Large dynamical systems tend “to organize themselves into a critical state, with avalanches” of all sizes.
“biology, history, and economics can be viewed as dynamical systems”
“In the critical state, events which would otherwise be uncoupled become correlated”.
“General equilibrium theory” has not been explicitly formulated for biology”, and this is why the avalanches of volatility could not be explained.
a non-equilibrium theory of economics can be constructed and it “will not be beautiful; it trivializes all the nuances and details that make complex systems exciting for humans”

1997 - P. Bak, M. Paczuski and M. Shubik
“Price Variations in a Stock Market with Many Agents”:
“rational optimizer” behavior is driven from economic analysis.
“noise traders” behavior is driven by market dynamics.
When the RELATIVE number of rational traders is small, “bubbles” often occur.
When the number of rational traders is larger, the market price is generally locked within the price range they define.

1999 - P. Bak, S. F. Norrelykke, and M. Shubik
“The Dynamics of Money”:
“in reality, agents usually make decisions locally and sequentially”
“money stores value between transactions”
“money is essentially a dynamical phenomenon, since it is intimately related to the temporal sequence of events.”
“Thus, the value of money is a “strategic variable”, that the agent in principle is free to choose as he pleases.

2005 - Albert-Laszlo Barabasi in
“The origin of bursts and heavy tails in human dynamics”
human nature is bursty
“a consequence of a decision based queuing process”.
“when individuals execute tasks based on some perceived priority, the timing of the tasks will be heavy tailed”


People do not behave in a random manner. 8/22/2005 RGK

People with the emotional self-discipline to consistently and effectively execute a “rational optimizer” strategy are the minority, whereas a noise trader’s barrier to entry is much less. Seeds are planted by “rational optimizers”, but “noise traders”, and their market driven perception of their stored value within the market drive bubbles and crashes.

Stocks are a temporary store of value.

Stock value is a PERCEIVED value; local, temporal and transitional based on market dynamics. PERCEIVED priority is greed/gain or fear/loss.

Greed drives the market up and out of control of the “rational optimizers”, and attracting ever more “noise traders”, self organizing until critical, highly correlated, and highly susceptible to a perceived shift in value and hence a fear driven crash.

A complex dynamic system self- organizing towards criticality. At criticality, events that during “rational optimizers” time in charge would be uncorrelated become highly correlated.

The complex dynamic system self-organizing is not the market.

The market is a derivative of what is self-organizing; noise traders. Greed or fear is their perceived priority; driven by a perceived, temporal, transitional, market dynamic value.

The biggest risk is the unforseen risk. (In finance) The same event in two different time frames can have dramatically different consequences. Literally a six sigma event, or larger, or not.
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